The real wall for China's development is the political system, it is now so unfit for the reality of China and dramatic change will happen, , peacefully or violently, in the next couple of decades. A innovative China with a modern political system is a benefit to the world.

My guess is that many talented Chinese researchers in fields like semiconductors study in Europe and the U.S. because there simply is no equivalent (yet) in China. Many of these researchers will of course go back to China and will no doubt help build the type of infrastructure China needs to go from what the experts call second-generation to first-generation innovation.

I think anyone doubting the inventiveness of chinese should visit any random technical university in the western world. I would say that maybe 30%+ of administrative staff and phd students are chinese in anything semiconductor-related here in Sweden. The same trend is true in pretty much the whole western world.
Somehow I get the feeling that people complaining about chinese "copying" and lack of inventiveness never have tried actually building something themselves. 99% of the time modifying an existing design is both smarter and a wiser choice than pie-in-the-sky inventiveness.

China is going through an economy cycle that post industrialized countries, primarily the western countries, have gone through. There are paths for them to follow. IMO, the theoretical wall would be when they have to pave their own way. In theory, it may come when innovation is necessary to keep the economic growth. By innovation, I don't believe we are constraints to technological innovation. I believe business model is evolution over time. Who could imagine Google is able to monetize information of the whole world 20 years ago? Similarly, facebook may be able to turn personal information into gold. Will China be able to transform way of doing business as well as create new products using different technologies? Only time can tell.
With regard to US and western world, pulling manufacturing back to the country may be a solution. Innovating manufacturing facilities may be a better way to go. There are products that are better off manufactured elsewhere, for example, toaster, TV sets. There are products that shall be manufactured in the country - the top tier technology, for example, some CPUs and sophisticated equipment, high efficiency solar panel.
Government can either encourage or create incentive to keep certain businesses in the country. At the end of the day, it is the business owners, says corporations, decide where the facility is going to be.

In the end US is like a headless giant walking or zigzaging. yeap, obama is the head and he is brainless (same sex marriage , LOL).
all you smart ordinarys can keep on cheering and wishing, maybe your next mormon president could save you all.